Global IPTV Equipment Market and Provider Competitor Analysis

Global IPTV Equipment Market and

Provider Competition Analysis

Frost & Sullivan July 2009

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Table of Contents

Summary...............................................................................................................1

1, IPTV Market Development Analysis ................................................................3

1.1, Global IPTV Market Development Analysis ...................................................................3 1.2, Emerging IPTV Market Development Analysis ..............................................................8

2, Competition Analysis of Top 5 Providers of IPTV Middleware ....................12

2.1, Function of IPTV Middleware...........................................................................................12 2.2, Competitive Factors ..........................................................................................................13 2.3，IPTV Middleware Competition Structure ....................................................................14 2.4，SWOT Analysis of Top 5 Providers ..................................................................................14 2.5, The Market Share Analysis of Top 5 Providers..............................................................19

3, IPTV Market Trend Forecasts and Opportunity Analysis .............................23

3.1,Market Trend Forecasts......................................................................................................23 3.2, Market Opportunity ...........................................................................................................27 3.3, Strategic Recommendations for IPTV Market.............................................................28

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Summary

As seen in Figure 1, no manufacturer in the global market has achieved the status of

absolute advantage in IPTV middleware market by the first quarter of 2009. Microsoft,

Thomson，ZTE， Alcatel-Lucent, and UTstarcom are the Top 5 providers (calculated in

accordance with the Subscriber License), and their market share totaled near 50

percent.

Figure 1 Market Share of Top 5 Global IPTV Middleware Manufacturers: Q1 2009

Providers Rank Market Share

Microsoft 1 12.4%

Thomson 2 11.6%

ZTE 3 9.1%

Alcatel-Lucent 4 8.9%

UTstarcom 5 7.8%

Total 49.8%

Source: FROST & SULLIVAN

Figure 2 Global IPTV Subscribers Forecasts: 2009-2012

21.9

37.6

62.1

95.9

139.7

0

20

40

60

80

100

120

140

160

2008年 2009年 2010年 2011年 2012年

IPTV

Sub

criber Forecast (Million)


As seen in Figure 2, Frost & Sullivan forecasts that the global IPTV market is expected to

maintain high growth rate for the future three years. The number of global IPTV

subscribers is expected to reach almost 140 million by the end of 2012, at a compound

Copyright2009 Frost & Sullivan - 1 -



annual growth rate (CAGR) of 45 percent from 2008 to 2012.

As seen in Figure 3, with the rapid growth of the global IPTV market, the top 5

manufacturers are expected to expand their market share. Top 5’s market share

totaled 55.8 percent by the end of 2008, and is likely to grow over 60 percent by the

end of 2012. Among them, Microsoft, ZTE and Alcatel have stonger competitive power

in the whole and will grow faster than others. On the other hand, Thomson’s and

UTstarcom’s influences is likely to be limited in certain regional markets and will grow

at a slower rate than the former three. To sum up, Microsoft has greatest influence in

high-end market of North America and Western Europe, and ZTE has highest growth

rate based on influence in emerging market of Asia and South America.

Figure 3 Market Share forecast of Top 5：2010

Providers Rank Market Share

Microsoft 1 14.1%

Thomson 2 12.0%

ZTE 3 11.2%

Alcatel-Lucent 4 10.5%

UTstarcom 5 8.3%

Total 56.1%

Source: Frost & Sullivan


1, IPTV Market Development Analysis

1.1, Global IPTV Market Development Analysis

As seen in Figure 4, global IPTV subscriber base has been growing rapidly since

2005, at an average annual growth rate of 78 percent. Even during the global

economic slowdown in 2008, IPTV’s subscriber base recorded a large increase.

Global IPTV subscriber base reached 2.184 million by the end of 2008, and the

year-on-year growth rate was 63.7 percent.

Figure 4 Global IPTV Subscriber Base: 2005-2008


As seen in Figure 5, as a major source of IPTV subscriber, Western Europe

accounted for about half of the total market in 2008. The other major regions were

North America, south and east Asia, and Asia Pacific, holding 17.6, 16.6, and 14.1

percent of the market, respectively. The remaining regions east Europe, Latin

America, and Africa, had not occupied any major share in the global IPTV service

market.



Figure 5 Region Distribution of Global IPTV Subscriber by the end of 2008


With respect to regional IPTV subscriber growth from 2007 to 2008, as seen in Figure

6, based on a large scale of subscriber, Western Europe grew at a lower rate of

47.4 percent, lower than the global average growth rate. North America and

South and East Asia experienced a rapid expansion with the growth rate of

around 100 percent. Asia Pacific had a lower growth rate of 40.1 percent.

Figure 6 Growth of IPTV Subscriber Base in Main Regions: 2007-2008

0

2,000

4,000

6,000

8,000

10,000

12,000

Western Europe North America South and East Asia

Asia Pacific Eastern Europe

Sub

crib

ers

('000

)

47.4%

116.1% 40.1%96.5%

90.1%


Western Europe recorded the largest scale of global IPTV market for the following




aspects.

• Under open policy, IPTV service in Western Europe started earlier than in

other areas. The governments of Western European countries encouraged

the competition between telecommunications operators and

broadcasting & TV operators to provide convergence service of triple-play.

• Mainstream countries of Western Europe, such as France and the United

Kingdom, had invested much in broadband infrastructure and

accumulated large broadband subscribers.

• The digital conversion evolution of TV industry in mainstream western

European countries was faster than that in North America. This aspect

contributed to the combination of TV industry and broadband and a

higher efficiency of the industrial chain collaboration.

Comparing with mainstream countries of Western Europe, North America’s

broadband penetration was relatively lower, and the digitalized transition of TV

industry was slower. Besides, several controversies affect implementation of the

regulation policy of IPTV. However, the most important factor is that cable TV was

well developed in North America and consumers relied on the cable TV to a great

extent. It was difficult for telecommunications operators to compete with them.

Accordingly, the scale of IPTV subscriber base in North America was smaller than

that of Western Europe. However, in recent years, the triple-play convergence in

North America increased rapidly and operators gradually found appropriate

business positioning of IPTV in competition. Especially, they developed a variety of

value-added services based on the IPTV’s Interactivity, which attracted a large

number of young family subscribers and attained higher growth rate.

Figure 7 Global Top20 IPTV Operators

Service Provider Rank Country/Area Subscriber

Free 1 France 3,531,000

France Telecom 2 France 1,985,000

Verizon 3 U.S. 1,918,000

China Telecom 4 China 1,800,000



AT&T 5 U.S. 1,045,000 PCCW 6 Hong Kong 980,000

Neuf Cegetel 7 France 850,000

KPN Telecom 8 Netherlands 775,000

Hanaro Telecom 9 South Korea 762,000

Korea Telecom 10 South Korea 713,000

Chunghwa Telecom 11 Taiwan 700,000

Telefonica 12 Spain 631,000

NTT 13 Japan 578,000

Belgacom 14 Belgium 506,000

Deutsche Telecom 15 Germany 500,000

TeliaSonera 16 Sweden 477,000

FastWeb 17 Italy 400,000

British Telecom 18 The United 378,000

Telecom Italy 19 Italy 329,000

OCN Theater Japan 20 Japan 280,000

Other - - 2,699,000


Frost & Sullivan found that the global IPTV market is dominated by mainstream

operators. As seen in Figure 7, IPTV subscriber share of Top 20 operators reached

87.6 percent in 2008, and European operators accounted for more than half of

the Top 20 operators. Accordingly, market concentration in Western European is

higher than others. In Western Europe, subscriber size of Free (Iliad) and France

Telecom from France ranked first and second, respectively. Verizon and AT&T from

the United States ranked third and fifth, respectively. China Telecom experienced

a two-fold growth in subscriber size in 2008, to rank fourth.

Mainstream IPTV operators seemed to find effective product mode and service

development mode after several years of exploration. IPTV service contributed to

an increase of ARPU and ROI for broadband service.

As seen in Figure 8, IPTV subscribers of BT in the recent five quarters grew at an

annual rate of 14.6 percent. This was much higher than the 1.8 percent growth

rate of broadband subscribers. Meanwhile, ARPU increased from ￡274 in Q1 2008

to ￡287 in Q12009.


Figure 8 IPTV and Broadband Subscriber Base of BT in Recent Five Quarters

Time IPTV Subscriber ('000) Broadband Subscriber ARPU (￡)

2009Q1 423 4,800 287

2008Q4 398 4,700 285

2008Q3 340 4,600 283

2008Q2 300 4,500 278

2008Q1 214 4,400 274


In the United States, AT&T experienced a rapid growth of subscriber size, since it

entered IPTV market in 2006. As seen in Figure 9, the subscriber size reached 1.33

million at the first quarter of 2009, with the growth rate of 352 percent compared

with the first quarter of 2008.

Figure 9 IPTV Subscriber Base of AT&T: 2007Q2 - 2009Q1


The global IPTV market gained development not only from the growth of

subscriber base, but also from diversity of service content and mature business

model. In Europe, IPTV service MaligeTV of France Telecom contained a variety of

contents, including Interactive TV and online program guides, video-on-demand,

personal video storage, access to the Internet and e-mail on TV, interactive

advertising, and video games. Furthermore, France Telecom established good




relationship with partners from broadcasting and TV industry. The two sides find

their business positions based on interaction and high-definition respectively.

In the United States, Verizon provided an open platform for IPTV service, allowing

developers and Internet providers to upload their various contents and

applications, such as Myspace, Facebook, Twitter, and other popular Internet

applications. This method greatly enriched the service content. Thus its subscriber

base experienced a double growth rate and increased from 9.4 million by the end

of 2007 to 19.18 million by the end of 2008.

On the other hand, with the growing popularity of IPTV business in Europe and the

United States, rich contents were no longer the single most important way to

attract users. Users set higher requirements of IPTV service quality. AT&T began to

provide high-definition content by improving the broadband quality. By the end

of 2008, there were 105 HD channels on U-verse TV and it provided a competitive

price.

1.2, Emerging IPTV Market Development Analysis

Besides Europe and the United States, the Asian IPTV market has gradually

attained large scale, especially in South and East Asia and China. With rapid

growth of IPTV subscribers, Asia is now the world's most important emerging IPTV

market. Primarily, this was due to the drive of broadband market in Asia.

As seen in Figure 10 and Figure 11, China's broadband subscriber base

experienced a further expansion and the growth rate remained around 25

percent for the three consecutive years. There were 10.1 million broadband

subscribers in China by the first quarter of 2009, which made China the world's

largest broadband market. In South and East Asia, the number of Indian

broadband subscribers reached 6.1 million. The Philippines and Vietnam

experienced the fastest growth rate of broadband subscribers, with 60.9 and 68.5

percent, respectively.


Figure 10 Broadband Subscribers in Top 10 Countries: 2006Q1-2009Q1


Figure 11 Broadband Subscribers Growth in Top10 Countries: 2007Q1-2009Q1


Figure 12 China's IPTV and Broadband Subscriber Base: 2005-2008

2005 2006 2007 2008

IPTV Subscribers 300,000 580,000 1,200,000 2,600,000

Broadband Subscribers 37,000,000 51,900,000 69,000,000 86,300,000

Percentage 0.8% 1.1% 1.7% 3.0%





As seen in Figure 12, IPTV subscribers in China increased from 0.3 million by the end

of 2005 to 2.6 million by the end of 2008, growing at a rate of 116.7 percent. The

IPTV penetration rate in the broadband subscribers increased from 0.8 percent in

2005 to 3.0 percent in 2008.

However, there were also restraints in the Asian IPTV market. First of all, some

countries in Asia had the regulatory restrictions on IPTV. For example, South Korea

forbade carrying the IPTV service on the TV channel, and Taiwan only allowed

operators to provide video-on-demand service. Second, IPTV business model

remains unclear in many emerging markets of Asia, such as the cooperation

mode and the interest division between operators and their partners. In addition,

the broadband infrastructure in Asia was still relatively weak, and most operators

needed to upgrade the network to meet the needs of more high-speed network

services. Accordingly, the Asian IPTV market had huge potential for development,

but also reflected the enormous regional imbalances.

In Hong Kong, PCCW, as the early mainstream operators of IPTV services in Asia,

has been able to provide triple-play business. PCCW received recognition from

users by providing a variety of services package to meet the needs of different

consumers. Due to the limited number of users in Hong Kong, PCCW developed a

variety of IPTV value-added services to enhance the ARPU. PCCW provided the

related interactive services in Hong Kong after realizing users' popular demand for

gambling in sports programming. This service was popular among users, and

accordingly, PCCW collected additional HKD 45 from each user each/every

month.

In China, China Telecom defined IPTV as a strategic emerging service and hoped

to improve the sustainable development of broadband services by entering the

business field of video services. As IPTV business in China is not regarded as

telecommunication services, the licensing is handled by the National

Broadcasting and TV Administration. Therefore, China Telecom entered into a joint

venture with Shanghai Media Group that owned IPTV license to develop IPTV


business. In the video services, SMG had extensive experience in the content and

operation. IPTV subscribers of China Telecom reached 1.08 million by the end of

2008. Regarding IPTV service content, China Telecom provided not only video

broadcasting and on-demand services, but also a number of value-added

services, such as information browsing, television Internet access, television

finance, games, e-magazines and so on. However, several problems still existed

for China Telecom in the IPTV business, such as the scarce content, insufficient

broadband bandwidth, poor interactive experience, and lack of users' willingness

to pay.

Figure 13 Latin American Broadband Subscriber Base: 2005-2012


In Latin America, only less than 0.1 percent of family ordered IPTV services by the

end of 2008, and the increase of subscriber was very less in number. This was

mainly due to the limit of the governments' legal supervision. For example, Brazil

prohibited carriers from providing video services through their own networks.

However, in terms of the basic conditions, the Latin American region had a

preliminary scale of broadband subscribers. Although the overall broadband

penetration was only 27 percent in Latin America, as an emerging broadband

market the growth of subscriber base showed a great potential. As seen in Figure

10, the average annual growth rate of broadband subscriber base was 48




percent in Latin America from 2003 to 2008, and the subscriber base reached 19.4

million by the end of 2008. From the perspective of subscriber concentration, the

total number of broadband subscribers from six countries (namely, Brazil, Mexico,

Argentina, Colombia, Venezuela, and Chile) took 90 percent share of the total

number of broadband subscribers in Latin America. Accordingly, broadband

subscriber base and concentration provided the basic conditions for the IPTV

service development in Latin America.

Similarly, in the CIS, Middle East and other regions, the broadband subscriber base

grew rapidly, but the IPTV service did not grow at any significant rate due to

regulatory policy, consumer psychology, and competition from cable television.

2, Competition Analysis of Top 5 Providers of IPTV Middleware

2.1, Function of IPTV Middleware

IPTV middleware is between digital TV platform and interactive application,

mainly including STB middleware, system middleware, service middleware, and

management middleware. It is the core part in the whole system and also the key

application development platform. It controls and manages elements inside the

whole IPTV system, including software (such as API, conditional access device,

and DRM system) and hardware (such as VOD server, headend device, and STB

device).

IPTV middleware can improve interconnectivity between the systems of different

providers and solve the compatibility problem between STBs and systems of

different providers. Thus, IPTV middleware can improve the openness of IPTV

system and enable more STB providers and APP developers to participate in

promotion of the whole industry chain, so as to accelerate full competition and

scale-economy.

Currently, IPTV middleware’s framework is more mature, and IPTV Middleware

providers gradually integrate and support more application. First, in area of video,

middleware provides interactive content support, including processing of

user-chosen content (such as VOD, Youtube, and so on) and user-generated



content (UGC). Second, in area of channel providing, middleware supports

interactive application, such as Home Shopping, Online study, and so on. Third,

middleware integrates mobile service and VOIP service with TV, such as IM inside

online games, caller ID on TV, and ringtones downloading through TV. In addition,

interactive advertising is also embodied in middleware’s future programming.

2.2, Competitive Factors

The following factors have strong influence on IPTV middleware.

Precipitation Assets

Middleware as a kind of infrastructure is difficult to remove after implementation.

When a kind of middleware solution is chosen by carriers, their IPTV business seems

to be bundle with it, while middleware providers would like to improve it so as to

benefit from increase of IPTV subscriber base. However, if the carriers’ IPTV

business is not well developed or face great challenge, they would take measures

to remove current middleware infrastructure.

Openness.

The global IPTV standard has not been unified, so the IPTV market is discontinuous

and dispersive. Some carriers, such as FastWeb and Free, develop private

middleware infrastructure. And some providers, such as UTstarcom, may provide

end-to-end solution without open APIs. Thus openness of IPTV middleware greatly

influences industry structure.

Regional characteristics and localized support

As a kind of VAS-based on Internet, IPTV service should improve network quality

and user experience after demand of local subscribers. Hence, the localized

support is indispensable.

Close cooperation between Industry participants

To improve user experience, middleware providers should cooperate with STB

providers and APP providers closely. Accordingly, those can provide end-to-end

IPTV solution, such as ZTE, may be stronger in competition. Besides, several

professional middleware providers, such as Microsoft, act as integrator and



cooperate with providers.

2.3，IPTV Middleware Competition Structure

IPTV middleware providers can be classified into three categories, as discussed

below.

Network providers, such as Alcatel-Lucent、Thomson and ZTE, are in the first

category. These providers shape end-to-end solution through self R&D effort or

M&A of professional participants. Additionally, based on their broadband

infrastructure business, they can provide integrated solution of triple-play to meet

carriers’ demand of network upgrade and development of VAS. In the past two

years, providers of this kind, such as Motorola, Cisco, Ericsson, are active in IPTV

market and they tried to improve their whole solution capability through M&A and

strategy alliance.

Microsoft is a typical representative of integrated solution providers. It involved in

IPTV market from middleware provision and extended to provision of other

infrastructure device. Through cooperation with server providers (such as IBM and

HP), and other participants in IPTV chain industry, Microsoft is able to provide

pre-integrated solution and promoted its business globally based on brand

influence.

Others can be classified as professional middleware providers, such as Espial and

Orca. They focus on software technology and provide open middleware

framework. As relatively smaller providers, they form alliance with providers of DRM

and VOD to improve competition strength.

In general speaking, the former two kinds of providers are in lead advantage in

the mainstream market. Thus, providers of the third kind are mainly seeking

application opportunity from tier2 or tie3 operators or in certain areas, such as

E-government and power industry.

2.4，SWOT Analysis of Top 5 Providers

Microsoft, Thomson, ZTE, Alcatel-Lucent, and UTstarcom are the Top 5 providers of

IPTV middleware.



Figure 14 SWOT Analysis of Microsoft in the IPTV Middleware Market

Strengths

1. Microsoft was an earlier participant in IPTV market. Due to its

high-end market strategy, Microsoft’s middleware product of

Mediaroom gains applications in many Tier1 carriers in North

America and Europe, such as AT&T, BT, DT, Swisscom, SingTel,

Reliance and so on.

2. Based on its brand advantage and its open API, Microsoft forms

alliance with global well-known hardware suppliers (including

server suppliers, chip suppliers, and set-top box suppliers). In

addition, Microsoft provides application development tool kit, as

well as the interoperability and qualification laboratory (IQ Lab). It

could bring cluster effect and scale effect so as to promote the

prosperity of digital home applications (including the Xbox

applications). All have a certain appeal to operators.

Weaknesses

1. Microsoft’s middleware product adopts server-client

architecture, thus its infrastructure investment and operating costs

are high. It does not comply with operators’ demand, especially

for the small and medium-sized operators. Accordingly, it is difficult

for Microsoft to gain recognition of emerging operators, so

Microsoft is lack of influence in emerging markets, such as Asia

and South America.

2. As a software provider, Microsoft's client resources and

influence in the telecommunications industry are weaker than

those of the traditional network equipment providers.

Opportunities

1. Microsoft can further expand its business from subscriber

increasing of existing clients of IPTV carriers.

2. Microsoft may consolidate its market position by improving

current solutions and attract small and medium-sized carriers. For

example, it provided virtual solutions to reduce carriers’

operation costs.



3. With the middleware market becoming further mature,

Microsoft may enhance aggregation effect and market influence

through continuous improvement of API.

Threats

Some mainstream operators, such as AT&T, have come to

recognize that Microsoft’s middleware solution has problem of

high operating costs. There is possibility for Microsoft to be

replaced in some areas.

Figure 15 SWOT Analysis of Thomson in the IPTV Middleware Market

Strengths

1. Thomson has capacity of end-to-end solution. In addition of

broadband access equipment, it is able to provide applications of

triple-play.

2. Thomson and FT have a successful and close cooperation.

Besides, Thomson has some clients of tier 3 carriers, such as SiOL

and Telenor.

3. Thomson sets up Soft At Home Union with FT and Sagem, which

is expected to bring cluster effect and model effect in IPTV area.

Weaknesses Besides FT, Thomson's product of SmartVisions fails to be applied in

other tier 1 and tier 2 operators.

Opportunities

1. Thomson can benefit from FT’s subscriber increase.

2. Thomson can enhance market development based on its

capability of end-to-end solution and its influence in the European

market.

Threats Thomson faces fierce competition in business development in tier

2 and tier3 operators.



Figure 16 SWOT Analysis of ZTE in the IPTV Middleware Market

Strengths

1. ZTE can provide a complete end-to-end solution and the

triple-play applications.

2. ZTE has some promising tier 1 clients, such as China Telecom,

and a significant lead in Asian market.

3. Based on the continuous accumulation of R&D, ZTE has

relatively strong capabilities of application development to

support IPTV user experience (for instance, to support TSTV and

TVOD service).

4. Comparing with Microsoft, Alcatel-Lucent and other traditional

providers, ZTE has a low-cost advantage in R&D and operating.

Weaknesses 1. ZTE has not entered the North American market and its influence

is low in the European market.

2. ZTE lacks to create an overall impact on the industrial chain in

the field of interactive media and it is difficult to form cluster

effect.

Opportunities

1. ZTE can benefit from China Telecom's subscriber increase and

improve the capabilities of IPTV application development.

2. As a network equipment provider, ZTE has a wide range of client

resources and strong influence in emerging market, such as Asia,

Middle East , the CIS, and South America.

Threats ZTE is facing strong competition from UTstarcom and Huawei in

emerging markets.

Figure 17 SWOT Analysis of Alcatel-Lucent in IPTV Middleware Market

Strengths

1. Through a series of M&A, Alcatel-Lucent is able to provide

end-to-end solutions and interactive multimedia services. In

addition, based on its business of broadband access network,

Alcatel-Lucent is capable to provide one-stop service of



triple-play applications.

2. Alcatel-Lucent has entered into European and Asian market

early, and attained few tier 1 and tier 2 operator clients, such as

Telefonica, Telecon Italia and CHT.

3. As a well-known network equipment provider, Alcatel-Lucent

has a wide range of customer resources.

Weaknesses

1. Alcatel-Lucent has two sets of middleware solutions (MiViewTV

and Open Media Platform), which makes it difficult to

concentrate its business resources and result in several internal

coordination problems.

2. MiViewTV product is poor in interactive experience, so

Alcatel-Lucent suffers the risk of being removed in some areas.

3. The patent dispute between Alcatel-Lucent and Microsoft has

led to the breakdown of cooperation, which decreased its impact

on high-end market.

4. Alcatel-Lucent faces great challenge in enterprise’s overall

management and operations, and it is ineffective in emerging

market exploration.

Opportunities

1. Alcatel-Lucent benefits from subscriber increase of Telefonica,

Telecon Italia, and CHT.

2. Alcatel-Lucent is able to focus middleware business resources

on a single product.

3. Alcatel-Lucent can highlight the capacity of its triple-play. This

has great appeal to the mainstream operators.

Threats

1. The breaking down of cooperation with Microsoft declines its

influence in the North American market.

2. Alcatel-Lucent is facing strong competition from ZTE and

UTstarcom in the emerging markets.



Figure 18 SWOT Analysis of UTstarcom in the IPTV Middleware Market

Strengths

1. UTstarcom is able to provide complete end-to-end solutions.

2. UTstarcom has clients of tier 1 and tier 2 carriers in Asia such as,

China Telecom and Bharti Airetel, and also gains some

application opportunities in North America and South America.

3. UTstarcom has continued investment in R&D in IPTV field.

Weaknesses

1. UTstarcom failed to enter the European market, and at the

same time, its influence is low in the North American market.

2. UTstarcom has failed to attract other industry participants.

Opportunities

1. UTstarcom can benefit from the subscriber increase of China

Telecom and accumulate IPTV application development

capabilities.

2. UTstarcom may get other opportunity from emerging market in

Asia and South America.

Threats

1. UTstarcom is currently facing significant challenge in

enterprise’s overall management and operations, which might

affect its continuous operation.

2. In China, UTstarcom is facing the strong competition from ZTE

and Huawei.

2.5, The Market Share Analysis of Top 5 Providers

In general, there are many IPTV middleware providers and more than 10 active

competitors. As seen in Figure 19, by Q1 2009, due to its influence in North America

and Europe, Microsoft was ranked first with 12.4 percent share in the world

middleware market (calculated in accordance with the License subscriber).

Thomson benefited from development of FT’s IPTV business and ranked second

with 11.6 percent share. ZTE surpassed A-Lu and ranked third with 9.1 percent

share, through its active market exploration in Asia, South America and other

emerging markets. A-Lu and UTstarcom were ranked fourth and fifth, with the


market share of 8.9 and 7.8 percent, respectively. Top 5 providers together held

about 50 percent market share in the world, but none of them had gained

overwhelming leadership the global market.

Figure 19、Market Share of Top10l IPTV Middleware providers: Q1 2009

Microsoft, 12.4%

Thomson, 11.6%

ZTE, 9.1%

Alcatel‐Lucent, 8.9%

Utstarcom, 7.8%Netgem, 7.6%

Cascade, 7.2%

Nokia Simens, 6.3%

Huawei, 6.2%

Alticast, 6.0%

other, 16.9%


As seen in Figure 20, based on the in-depth cooperation with FT, Thomson gained

the largest share in Europe. Alcatel-Lucent took over Telefonica's IPTV service and

had an in-depth cooperation with Telecom Italia. Microsoft's key client in Europe

included BT and DT. Nokia Siemens and Netgem also had cooperation with some

tier1 carriers in Europe. They are the mainstream providers in Europe.

Figure 20 Top 5 IPTV Middleware providers in Europe Market: Q12009

Provider Rank Main Client in Top20 IPTV Carriers

Thomson 1 FT

Alcatel-Lucent 2 Telefonica, Telecom Italia

Microsoft 3 BT, DT

Netgem 4 Belgacom, KPN

Nokia Siemens 5 Belgacom，Neuf Cegetel,

Tele2/Versatel





As seen in Figure 21, Most of mainstream carriers in North America adopted

Microsoft’s middleware solutions. Other providers in North America mainly

cooperate with tier 2 or tier 3 carriers.

Figure 21 Top 5 IPTV Middleware providers in North America Market: Q12009


Microsoft 1 AT&T

Nokia Siemens 2 None

Motorola 3 None

Minerva 4 None

Alcatel-Lucent 5 None

Data source: FROST & SULLIVAN

Figure 22 Top 5 IPTV Middleware providers in Asia Market: Q12009


ZTE 1 China Telecom

UTstarcom 2 China Telecom

Cascade 3 PCCW

Microsoft 4 Chunghwa Telecom

Huawei 5 China Telecom


As seen in Figure 23, Top 5 middleware providers in Asia included ZTE, UTstarcom,

Cascade, Microsoft, and Huawei. ZTE, UTstarcom, and Huawei are in fierce

competition with each other in the Chinese market. Based on leading advantage

in technology and user experience, ZTE and UTstarcom became the mainstream

providers in the Chinese market as a result (as seen in Figure 24). Besides the

Chinese market, ZTE attained significant share in the South and East Asian markets.

For example, ZTE cooperated with VNPT, which is the largest carrier in Vietnam,

and established an IPTV plan with subscriber capability of 60,000. Thus, ZTE is the

leader in the Asian market. Cascade ranked third due to its cooperation with

PCCW. Microsoft implemented its high-end strategy in Asia and attained IPTV


application in Chunghwa Telecom and was ranked fourth. Besides, it attained

relationship with Sing Tel and Reliance, which have great potential in IPTV

business.

Figure 23, Top5’s market share of Asia IPTV middleware: Q12009

ZTE42.0%

Utstarcom39.5%

Huawei15.6%

Alcatel‐Lucent0.1%

others2.9%


In addition, ZTE and Alcatel-Lucent have great influence in other markets, such as

South America and Middle East. For example, ZTE attained application in CANTV,

which is the largest carrier in Venezuela, which made ZTE the mainstream provider

in South America.

Overall, most of the global mainstream IPTV carriers are in rapid-growth stage,

and the top 5 providers have greater influence in relevant regional markets.

Therefore, top 5 providers are expected to expand their market share.

Microsoft’s strategy of positioning in the high-end market has begun to gain

favorable return. ZTE and UTstarcom have technical advantage and have more

influence in emerging market of Asia and South America. Hence, these three

have stronger overall competitive power and are expected to grow faster than

others. On the other hand, although Thomson and Alcatel-Lucent are expected

to increase market share, their influence seem to be limited in regional markets.

Accordingly, Thomson and UTstarcom are expected to grow lower than the other

three. To sum up, Microsoft has greatest influence in high-end market, and ZTE has



highest growth rate based on influence in emerging market of Asia and South

America.

Figure 24、Market Share and Competition Strength of Top 5


Market share

Competition strength

High Low

Weak

Strong ZTE

UTstarcom

Microsoft

Thomson

Alcatel-Lucent

Source: Frost & Sullivan,

3, IPTV Market Trend Forecasts and Opportunity Analysis

3.1, Market Trend Forecasts

The future IPTV market was mainly driven by the following factors.

Global broadband penetration rate is increasing steadily. Broadband

penetration rate in the United States has increased from 39 percent in 2005 to

60 percent in 2008. France’s penetration rate increased from 28 percent in

2005 to 68 percent in 2008, and that of China increased from less than 10

percent in 2005 to 25 percent in 2008. The higher penetration rate and better

broadband infrastructure are the most important drivers of IPTV market.

Demographic environment is also favorable for IPTV market development. With

emerging of more and young families, IPTV service is likely to be a popular

broadband application, because young families are not satisfied with passive

traditional TV service. While IPTV can provide more interactive content and

applications, it is more attractive for young consumers and gets the

recognition of emerging families.



Policy openness is enhanced. There is no doubt that triple-play is a global

trend. In the emerging markets of Asia, governments in many countries tend

to implement more open regulation policy for IPTV service. It will reveal the

great potential of Asian market.

On May 19, 2009, the Chinese Government issued a clear statement of

permission on a two-way open policy for broadcast and TV industry and

telecommunications industry, it would promote triple-play greatly.

In South Korea, the regulation authority issued IPTV licenses to Korea

Telecom, Hanaro Telecom, and LG Dacom in September 9, 2008.

In India, new regulation policy allows broadcast and TV companies to

share content with the telecommunications operators that provide IPTV

services. This lays the foundation for the IPTV service in India.

Convergence of triple-play improves user experience of IPTV service. In view

of consumer need, triple-play can integrate the advantages of cable

network, fixed network, and mobile network, so as to provide best service

experience.

In addition, IPTV industry standardization process has key impact on the

maturity of industry chain. At present, global telecommunications standard

organizations, such as ITU and IETF, try to unify IPTV’s overall architecture.

They also invite regional organizations of North America and Europe together,

as well as digital home working groups. Early in 2008, ITU had established a

focus group (FG IPTV), and worked toward forming a global IPTV standard.

As seen in Figure 25, Frost & Sullivan forecasts that the global IPTV market is likely to

maintain high growth rate in future three years. The global IPTV subscriber base is

to reach almost 140 million by the end of 2012, with CAGR of 45 percent from 2008

to 2012.


Figure 25 Global IPTV Subscribers Forecasts: 2009-2012

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012

IPTV

Sub

crib

er F

orec

ast (

Mill

ion)

Other Eastern Europe Asia PacificSouth and East Asia North America Western Europe


Figure 26 2012 Global IPTV Subscriber Distribution Percentage


With respect to regional distribution, Frost & Sullivan forecasts that the overall

market share of Asia is expected to increase from 30.7 percent in 2008 to 39.3

percent in 2012. Then Asia is expected to become the world's largest regional IPTV

market. The market share of western Europe is likely to fall from 47.6 percent in

2008 to 26.7 percent in 2012, while that of North America and Asia Pacific will rise

to 24.0 percent and 23.2 percent, respectively, in 2012.

As for the middleware, the field adapts to the overall development of the whole

trend of IPTV and shows the following trends.




An Open Platform

In order to achieve the operations scale and cluster effect for IPTV service, it is

necessary for the operators to allow more set-top box manufacturers and

application developers to participate in the IPTV industry chain. This requires the

support for an open middleware platform. Middleware vendors that have no

open API interface are very unlikely to compete in the mainstream market.

More Support for Triple-play User Experience

Middleware is expected to provide more support for Internet value-added

services and triple-play, including the support of technical interface and of

operations enhancing.

More Efficient Platform Architecture

In order to reduce operators’ investment costs, more efficient technology is to be

introduced into the IPTV platform architecture. For example, P2P technology can

use server and bandwidth resources more efficiently.

In addition, IMS-based IPTV applications are far from mature and difficult to gain

the substantive support of the mainstream manufacturers and operators for the

short term.

As seen in Figure 27, in IPTV middleware market, the mainstream providers, such as

Microsoft, ZTE, and Alcatel-Lucent, are likely to expand their market shares quickly

and enhance market concentration, and regional providers are likely to be

restricted in certain market and grow at a relatively slower rate. On the other

hand, small and medium providers, such as Netgem, are not likely to grow at a

significant rate.


Figure 27 Market Share Forecast of Top10 of IPTV Middleware:2010

Microsoft, 14.1%

Thomson, 12.0%

ZTE, 11.2%

Alcatel‐Lucent, 10.5%

Utstarcom, 8.3%

Netgem, 7.8%

Cascade, 7.2%

Nokia Simens, 6.9%

Huawei, 6.5%

Alticast, 6.8%

other, 8.0%


3.2, Market Opportunity

In Western Europe, there are great differences among different countries’ IPTV

market. On the basis of high level of broadband coverage and current IPTV

market scale, IPTV service in France and the United Kingdom is likely to grow

rapidly in the next two years, while in Italy, Spain, and other countries, broadband

coverage is relatively low. As an impact of economic crisis, operators will reduce

investment in IPTV infrastructure. In Germany, the IPTV market at present has strong

drive after the Government’s implementation of the national broadband

strategy. In the northern European countries, such as Denmark, Sweden and so on,

with high broadband penetration and small population base, a stable growth

rate is likely in the next two years. Generally, the western European market is not

expected to achieve growth at a high rate.

In North America, a unified market exists and triple-play is gaining in popularity.

Thus, the IPTV market is likely to maintain rapid growth in the next two years and

generate a greater influence worldwide.

In emerging markets of Asia, including China, South Korea, India, Singapore,

Thailand, Vietnam, and other countries, policy conditions and demographic




characteristic tend to be favorable. The Asian IPTV market is likely to gain rapid

growth and to become the most dynamic market besides North American

market.

The South American market has not yet taken off due to policy constraints.

However, certain countries, such as Venezuela, Mexico, and Brazil, had released

IPTV service. The existing broadband subscriber base has achieved a

considerable scale in the region. Thus, the South American market has future

development potential.

3.3, Strategic Recommendations for IPTV Market

Microsoft is suggested to adopt the following strategies for the IPTV middleware

market.

In the mainstream markets including North America and Western Europe,

Microsoft can improve its existing IPTV solution in order to reduce the carriers’

operating costs. Thus it can consolidate relationship with mainstream carriers, such

as AT&T, and BT. Meanwhile, Microsoft can take advantage of its brand effect to

attract more application developers support for its middleware platform, so as to

enhance user experience through the rich service content.

In the emerging markets in Asia, Microsoft can establish alliance with local IPTV

industry participants and seek opportunity from tier 2 carriers.

Thomson is suggested to adopt the following strategies for the IPTV middleware

market.

In French market, Thomson can consolidate the cooperation with France Telecom

and the domestic content providers. It is necessary for Thomson to realize

aggregation effect in the field of digital home. And France Telecom’s success in

IPTV industry will help to improve Thomson’s influence.

Based on France Telecom's success, Thomson is suggested to attain cooperation

with emerging carriers based on expanding unified market of Europe.

ZTE is suggested to adopt the following strategies for the IPTV middleware market.

ZTE is suggested to deepen cooperation with China Telecom and to promote the



market development actively in South and East Asia in order to strengthen its

leading position in the Asian market.

Based on the advantages of lower operating costs, ZTE is suggested to explore the

European and North American markets, mainly in tier 2 and tier 3 carriers,

especially to seize opportunity to satisfy the carriers’ demand for low operating

cost during the economic crisis.

In the South American countries with relatively better broadband infrastructure,

ZTE can take advantage of its comprehensive influence in telecom field to seize

potential IPTV opportunities.

Alcatel-Lucent is suggested to adopt the following strategies for the IPTV

middleware market.

It is important for Alcatel-Lucent to focus business resources on a single

middleware product, so as to reduce the total operating cost.

In the European market, based on the existing cooperation with the mainstream

operators, Alcatel-Lucent is suggested to get more support from application

developers, so as to enhance aggregation effect in order to enhance the overall

impact on the European market.

Based on the extensive resources of carrier clients in the broadband access

market, ZTE is suggested to actively explore the emerging markets of south and

East Asia and South America.

UTstarcom is suggested to adopt the following strategies for the IPTV middleware

market.

UTstarcom is suggested to increase the openness of its middleware platform to

enhance the attractiveness of the carriers and other industry participants.

UTstarcom can deepen the cooperation with Asian mainstream carriers including

China Telecom and Bharti Airtel for long-term development, which also helps to

stabilize of R&D team and operation team.

UTstarcom can attain future growth by exploring markets of North America and

South America.

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Global IPTV Equipment Market and Provider Competitor Analysis

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